Correlation Between ICD and Lotte Chilsung

Can any of the company-specific risk be diversified away by investing in both ICD and Lotte Chilsung at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining ICD and Lotte Chilsung into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ICD Co and Lotte Chilsung Beverage, you can compare the effects of market volatilities on ICD and Lotte Chilsung and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in ICD with a short position of Lotte Chilsung. Check out your portfolio center. Please also check ongoing floating volatility patterns of ICD and Lotte Chilsung.

Diversification Opportunities for ICD and Lotte Chilsung

-0.66

Correlation Coefficient

ICD  Lotte Chilsung

Excellent diversification

The 3 months correlation between ICD and Lotte is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding ICD Co and Lotte Chilsung Beverage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotte Chilsung Beverage and ICD is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on ICD Co are associated (or correlated) with Lotte Chilsung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotte Chilsung Beverage has no effect on the direction of ICD i.e., ICD and Lotte Chilsung go up and down completely randomly.

Pair Corralation between ICD and Lotte Chilsung

Assuming the 90 days trading horizon ICD Co is expected to generate 3.96 times more return on investment than Lotte Chilsung. However, ICD is 3.96 times more volatile than Lotte Chilsung Beverage. It trades about 0.04 of its potential returns per unit of risk. Lotte Chilsung Beverage is currently generating about 0.01 per unit of risk. If you would invest  426,500  in ICD Co on December 30, 2024 and sell it today you would earn a total of  17,500  from holding ICD Co or generate 4.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

ICD Co  vs.  Lotte Chilsung Beverage

ICD Co

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ICD Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ICD sustained solid returns over the last few months and may actually be approaching a breakup point.

Lotte Chilsung Beverage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lotte Chilsung Beverage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lotte Chilsung is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ICD and Lotte Chilsung

The main advantage of trading using opposite ICD and Lotte Chilsung positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ICD position performs unexpectedly, Lotte Chilsung can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Lotte Chilsung will offset losses from the drop in Lotte Chilsung's long position.

The idea behind ICD Co and Lotte Chilsung Beverage pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.